In her 2006 State of
the State address, Gov. Jennifer Granholm famously promised, "In five years,
you’re going to be blown away by the strength and diversity of Michigan’s
transformed economy."

We’ve been blown away
alright — nearly three years ahead of schedule — but not for the reasons she
claimed. In the midst of our single-state recession, Gov. Granholm and a thin
majority of the Legislature just clobbered Michiganians with tax hikes of
historic proportions. To close a $1.75 billion overspending crisis for the
fiscal year that started Oct. 1, they imposed an immediate boost in the state
income tax and a brand new sales tax on a bizarre range of services, mostly
business-to-business transactions. That leaves more than $400 million to be cut
from spending before a 30-day continuation budget runs out Oct. 31.

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Michiganians aren’t happy. By a 2-1 margin in
a poll taken before the tax hikes materialized, residents indicated they
preferred spending cuts over tax increases as a way to balance the state
budget. The anger is burning up the phone lines to radio talk shows and
legislative offices and filling the letters-to-the-editor pages. Ten of the tax raisers — five Democrats and five
Republicans — are now targets of recall election campaigns spearheaded by the
Michigan Taxpayers Alliance. A broad-based coalition of business groups is
threatening to put a repeal of the sales tax hike on the ballot if the
Legislature doesn’t undo its damage.

The nearly $1.4
billion tax hike would be difficult enough in a robust climate, but Michigan’s
tax base of people and businesses is shrinking, as evidenced by these sobering
facts:

In 2006, Michigan was tied with North Dakota for the highest
outbound migration rate of any state, according to United Van Lines
statistics.

The state’s
per capita income has been in freefall relative to other states since 2000.
It is now an astonishing 7.8 percent below the national average — unprecedented
since the Great Depression.

Home values are plummeting as foreclosures soar to their highest
level in recent memory.

In 2001, Michigan’s average private sector wage was 9 percent
below the average in state government. Today, it’s about 18 percent below. We’re
becoming a poor state but with well-off public servants.

According to the Tax Foundation, the state’s overall tax burden
will rise to 12th in the country if the recent hikes take effect. (Note: On Aug. 7, 2008, the Washington, D.C.-based Tax Foundation released its newest State-Local Tax Burden Ranking of the 50 states. This report included a change in the methodology used to compute and rank tax burdens which led to a significant drop in the position Michigan held in Tax Foundation rankings — from 14th to 27th among the 50 states.)
Add in the
"taxing" effect of our high
regulatory burden and a labor climate perceived as unfriendly and you have a
toxic brew that’s driving away people and businesses every day.

This is a state rich
in natural beauty and resources, skilled laborers and entrepreneurial potential
but it’s being frittered away by political "leaders" who cannot muster the
courage to
fix the fundamentals.

Gov. Granholm
dismisses the magnitude of the higher levies by claiming it’s a mere "dollar a
week for the typical citizen." Funny how politicians use numbers. Suppose Bill
Gates decided to gift Michigan a billion and a half bucks. The governor would be
crowing about its magical stimulus for months. If a band of thieves made off
with $1.5 billion from Michigan banks, she surely wouldn’t ho-hum her way
through that. But if it’s siphoned from taxpayers for government to spend? Well,
sheep aren’t supposed to squeal; they’re supposed to be sheared.

More than the shearing
itself, it’s the crude and crazy clippers that have the flock in an uproar.
After months of impasse between the Republican Senate and the Democrat governor
and House, it wasn’t much of a surprise, sadly, that the budget deal struck in
the wee hours of Oct. 1 raised the state’s flat-rate income tax 11.5 percent.
But, as a popular joke in Lansing avers, not even the fortune-tellers,
palm-readers and astrologers now subject to the new service tax saw it
coming. Other services singled out for the tax include baby shoe-bronzing, lift
tickets at ski resorts, house sitting, personal fitness training and singing
telegrams. Two-thirds of the expected new revenue is projected to come from
taxing interior design, landscaping, cabs and limos, financial and business
consulting, office administration, warehousing, storage and janitorial services.

Proving once again
that government is not rocket science, only one obvious pattern is apparent in
the crazy quilt of services to be taxed: If you didn’t have a lobbyist in the
Capitol on Sunday night, Sept. 30, you were fair game. One senator explained
that he removed bowling from the list at the request of Gov. Granholm.

Almost every observer
of the auto industry agrees that to survive, the
Big Three must arrive at a "transformational" agreement with the United Auto
Workers that gets rid of gold-plated benefits, archaic work rules and expensive
job banks. This change appears to be taking place in settlements reached
recently between the UAW, GM and (hopefully) Chrysler. It’s becoming just as
apparent, however, that Michigan’s public sector unions and their allies in
Lansing will
protect their turf and resist similar transformational changes in
government.

A hue and cry for tax
hikes never arose from the general public in Michigan. It came from within the
bureaucracy and from public sector unions such as the Michigan Education
Association, which lobbied aggressively against spending reductions because they
wanted taxpayers to tighten their own budgets so that government workers
wouldn’t have to. Gov. Granholm shows little interest in taking on those
entrenched interests, even in the face of research that identifies hundreds of
millions of dollars in potential savings from simply scrapping the state’s
prevailing wage law or contracting out high-cost government services.

Blame for Michigan’s
mess ought to be shared by a few others too. There are the "reporters" who claim
to "cover" Lansing but rarely tell their readers there are viable alternatives
to raising taxes. There are the policy cranks and snake oil spokesmen who claim
our economic salvation depends on
throwing more money at universities, even though students are staying in
Michigan for the education. It’s the jobs they’re leaving for. And then
there are the regulators in state agencies like the
Department of Environmental Quality, which sorely needs some adult
supervision. If you can’t get past the regulatory gatekeepers, it doesn’t even
matter what the tax or labor climates are.

Will the tax hikes stand? Don’t bet on it. Public ire, already at
fever-pitch, will only grow if the service tax takes effect as scheduled on Dec.
1. Resentment against the governor’s union allies is
so widespread it’s even fueling calls to end compulsory unionism by making
Michigan the nation’s 23rd
right-to-work state.

Crisis and opportunity
often go hand in hand. The residents of Michigan just may yet teach the
political class a lesson that will reverberate well beyond our state. In the
meantime, Michiganians have every right to be angry with the shameful dearth of
courage and leadership in Lansing.

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Lawrence W. Reed is president of the Mackinac Center for
Public Policy, a research and education institute headquartered in Midland,
Mich. Permission to reprint in whole or in part is hereby granted, provided that
the author and the Center are properly cited.